Referring to the previous article, banks are facing 3 disruptors: retail companies, telecommunications companies and Internet giants. Each of these players are in some way:
- interfering with the banks’ exclusive relationship with its clients
- taking apart its distribution business
- breaking up its value chain.
What should banks do?
This is a question Jean-Yves Bruna and I reflected upon when we sat down several days ago.
I/ Jean-Yves Bruna’s bio
Jean-Yves Bruna is the Chief Strategy and Development Officer in a leading European Banking Software Company. He’s a seasoned Banker and General Manager of European (Italy, Spain, Poland) and Latin America Banking and Consumer Finance subsidiaries (managing thousands of people) of an International Bank.
II/ The “automobile scenario” provides insight on how banks can fight off disruption
Assuming that a bank has created a partnership with an automobile manufacturer, the following scenario could occur and could be very beneficial for banks. Let’s assume that you would want to buy a car.
- You would go to your bank and meet with your account manager
- Banks provide you with financial simulations representing spending habits, income, tax costs and more
Based on the information a software program will automatically calculate your purchasing power. It would create multiple scenarios. For example, it could offer:
- A thrifty scenario
- A lavish scenario
- An intermediate scenario
For every scenario, it would offer a corresponding type of car. So, one would know exactly what are the kinds of cars that he can purchase.
III/ The purchasing decision must be made in banks
In this example, much of the purchasing decision to buy a car takes place in a bank not in an automobile manufacturer. This is critical for banks who want to strengthen their relationship with their clients and fight against disruptors who are interfering with their client relationship.
At another level, this example implies that banks have to profoundly change their information systems.
- Indeed, much of their information system is built on a very rigid structure where making changes is difficult and time-consuming
- Plus, these systems were designed to be closed off from any other system
- As banks are trying to strengthen their relationship with clients and partners, they must endorse much more open information system in order to introduce a partner into their information system
This is illustrated in the automobile example, above. For the bank to be able to suggest different types of cars, it must have to create a dialog between its own information system and that of the automobile manufacturer.
IV/ A focus on a new entrant: Google Wallet
Today, Internet giants, such as Google, are creating new payment services such as Google Wallet. Google Wallet aims to account for every single purchase its clients make. It collects additional information on the circumstances of the purchase, whether it’s:
- Purchaser identity
- Purchased good
- Time of purchase
As this information is collected not only at an individual level but also collectively, the goal is to collect information pertaining to millions and millions of purchases. Over time every single client will be profiled based on socio-demographics, consumption history and more.
Then, this information will be compared to those who have similar purchasing habits. The end goal is not only to profile clients but also, to predict consumption behavior. In other words, the goal is to understand what kinds of clients buy what kinds of goods, where and when. And, based on this information, Google will sell its client knowledge to suppliers to companies. These companies will revamp their advertisement strategy based upon client intelligence. They may also purchase ad services from Google or other providers.
V/ How should banks fend off disruption? A conversation with Jean-Yves Bruna
So this is where we were heading with the data in innovation and banks. Again, banks are losing the exclusive relationship with their clients. Disrupted, banks run the risk of becoming factories of retail bank operations processing, if they don’t innovate.
This concludes a conversation I had with Jean-Yves Bruna.
- For an interesting description on how banks tap into innovation from start-ups, please refer here
- For a presentation of payment innovation, please refer here
- For a presentation of innovation in retail banking, please refer here
- For an interesting blog article on how banks are facing disruptive innovations, please refer here
- For a presentation of 3 ways banks can support innovation, please refer here